Will extremely cheap data plans dent telcos' profits?

Prices may drop further in coming months.

Incumbent telcos scrambled to slash mobile plan prices last week after MyRepublic unveiled indicative prices for its mobile plans.

When MyRepublic said that it can offer SIM-only plans for as low as $8 per month, the three incumbents swiftly released cheaper plans for current and new subscribers. For instance, Singtel unveiled its DataX2 plan, offering double the data allowance for its current plans at a flat fee of $5.90.

Meanwhile, M1 hiked its data allowances for by 67-92%, while StarHub offered 3GB of additional data at a promotional rate of $3 per month.

According to BNP Paribas, the incumbents' rapid response illustrates that troubles that a fourth telco operator will run into.

"This is a strong demonstration of the incumbents’ willingness to raise the barriers for operators looking to enter the market. We believe the pricing change could encourage re-contracting in the coming months, which would lock subscribers into two-year contracts. Crucially, this could shrink the addressable market for a new operator looking to launch services end-2017/early-2018," analyst Wei Shi Wu said.

Wu noted that the effect of aggressive pricing will be negligible for local telco's profits. The new plans will only be relevant to subscribers already on relatively high-end plans, and lower prices will only trim incumbents' profits by around 3% to 5%.

“In our view, this impact may be balanced out by the ARPU expansion when subscribers on lower plans take up the data add-ons," she said.

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